On leaving the university, Sakaguchi became a part-time employee of Square, a newly formed branch of Denyūsha Electric Company founded by Masafumi Miyamoto.[2] When Square became an independent company in 1986,[3] he became a full-time employee as the Director of Planning and Development.[4] Sakaguchi then decided to create a role-playing video game which he named Final Fantasy as a result of his personal situation; had the game not sold well, he would have quit the games industry and gone back to the university.[5] The game was released in Japan for the Nintendo Entertainment System on December 18, 1987, and was successful across Japan. Under Sakaguchi's supervision, Final Fantasy developed into a successful franchise, spanning from stand alone stories to spin-offs to direct sequels. In 1991, following the release of Final Fantasy IV for the Super Nintendo Entertainment System, he was honored with the position of Executive Vice President.[4] The last Final Fantasy game he directed was Final Fantasy V, becoming the producer for future installments of the franchise. In 1995, he became president of Square's North American division.[4] His final role as game producer was for Final Fantasy IX. In an interview at the time he described it as his favorite Final Fantasy.[6] He later went on to serve more as an executive producer of the series, as well as many of Square's other games, including Vagrant Story, Parasite Eve and Kingdom Hearts. The Kingdom Hearts series would later go on to feature a character named Master Eraqus, who was designed to physically resemble Sakaguchi and match with Disney's Yen Sid. In May 2000, Sakaguchi received the Hall of Fame Award of the Academy of Interactive Arts & Sciences.[4]

A long time proponent of bringing together the story-telling vehicle of film and the interactive elements of games, Sakaguchi took the leap from games to film when he made his debut as film director in Final Fantasy: The Spirits Within, an animated motion picture based on his world-famous Final Fantasy series. Despite some positive reviews, the film was a box office bomb, losing approximately 94 million dollars.[7]

Sakaguchi voluntarily stepped down from his post as an executive vice president at Square. This event also reduced Square's financial capital. Square later merged with its rival, the Enix Corporation, which led to the creation of Square Enix in 2003. In 2004, Sakaguchi founded Mistwalker with the financial backing of Microsoft Game Studios.

Later he began working on a new "large scale project" on which Sakaguchi commented: "I'm betting a lot on this project."[9] This game was announced in January 2010 to be The Last Story, a co-production with Nintendo for the Wii.[10] It was revealed in an interview on Nintendo's website that Sakaguchi is the director of The Last Story, which marks his first time as director of a game since Final Fantasy V.[11]

In 2016, he announced the formation of a new video game development company located in Tokyo. The proposed name of the studio is "Dawnwalker".[12]